Washington | New York

1101 New York Avenue, NW | 8th Floor | Washington, DC 20005-4269 | P: 202.962.7300 | F: 202.962.7305

www.sifma.org

September 24, 2015

Mr. Joseph Piacentini

Office Director and Chief Economist

Employee Benefits Security Administration

Department of Labor

200 Constitution Ave, NW, Ste N-5718

Washington, DC 20210

Piacentini.joseph@dol.gov

Dear Mr. Piacentini:

Attached please find a memo from NERA to SIFMA which addresses the questions the 

Department asked about the NERA study in their letter to SIFMA of August 26th.

Sincerely,

Kenneth E. Bentsen, Jr. 

President and CEO

SIFMA
1

NERA Economic Consulting

1166 Avenue of the Americas

New York, New York 10036

+1 212 345 3000 Fax: +1 212 345 4650

www.nera.com

Memo

To: SIFMA

Date: September 21, 2015

From: Patrick Conroy

Subject: Answers to Questions Regarding NERA’s “Comment on the Department of

Labor Proposal and Regulatory Impact”

We address the questions raised by Joseph S. Piacenti relating to our “Comment on the 

Department of Labor Proposal and Regulatory Impact” below.

1) What are the identities of the financial institutions at which these 63,000 IRA accounts 

are placed? How many of the fee-based and commission-based accounts, respectively,

are placed in each of the financial institutions? Alternatively, please characterize 

generally how closely these firms represent, or how they differ from, the industry at 

large.

a) The data we collected, including customer account and transaction details, was 

provided to us under strict confidentiality. For our analysis, we requested data 

from a number of SIFMA member firms consisting of a variety of standard 

variables contained in brokerage databases. In response to this request, we 

received information on over 60,000 accounts. Because firms retain and process 

their proprietary data to fit their own unique regulatory and business 

requirements, the data produced by each participating firm differed; therefore, we 

worked with the relevant variables provided across firms to construct the sample 

used in our analyses.

b) We provide a percentage breakout of fee-based vs. commission-based accounts in 

Exhibit 2 of our report. Approximately 71% of the accounts in our sample are 

commission-based and 29% are fee-based.

c) After constructing our data sample, we analyzed the tens of thousands of 

accounts in the data and confirmed that the sample accounts contained a wide 

variety of balances, transaction activity levels, and customer ages. Please see 

our reply to questions 4 and 5 for details. 
September 21, 2015

2

2) Please provide a description of the methodology used to select firms for participation 

in the survey and any other information that might assist in assessing the 

generalizability of the survey findings.

We sought to generate a sample of IRA accounts that were maintained under either a 

brokerage or wrap-fee model. SIFMA representatives arranged communications with 

member firms that enabled NERA to outline the types of data we were seeking in order to 

construct such a sample of brokerage data that included both types of accounts. As noted 

above in answer 1(a), in our conversations with individual member firms, we

determined that confidential data would be produced for thousands of accounts. We 

took this individual firm data and combined it to construct the database used for the 

analysis.

3) What criteria were used in selecting IRA accounts for the sample? NERA's report 

characterizes this set of accounts as "a representative sample of retirement accounts." 

What population of retirement accounts is this sample believed to be representative of? 

Is it believed to be representative of all U.S. IRA accounts? What analysis was performed 

to support the assertion that the sample is representative?

NERA sought to generate a sample of IRA accounts that was broadly representative of

the general population of IRAs. To do so, we asked members to provide us with a 

random sample of IRA accounts at their firms, where possible. After compiling our 

sample of over 60,000 accounts from different institutions, we analyzed the

distribution of accounts across available dimensions in the data, including 

characteristics such as account balance, age and trade frequency. This analysis gave us 

confidence that our data included a diverse selection of accounts, with no evidence of 

any bias in the data. We provide histograms of several of those variables below.

4) Please provide raw account-level data in csv format. In the absence of raw data, please 

provide descriptive statistics, including means and ranges by account type and size, 

for each variable analyzed in the report, including fee components and returns. 

Please provide a summary of the characteristics of the IRA accounts, including account 

balance and asset allocation, by fee structure (fee-based v. commission-based 

accounts).

As noted above, the data collected is proprietary and confidential. We provide below 

additional summary tables in response to questions regarding the distribution of various 

metrics, where available. In preparing these tables, we ran checks on the underlying data 

provided by the member firms to ensure its accuracy, including only checked, reliable 

observations in the metrics.
September 21, 2015

3

a) Means and quartiles for fees, by account size and type:

2014 Fees

Account

Balance

Range

Mean Median 25th Percentile 75th Percentile

Fee

Based

Commission

Based

Fee

Based

Commission

Based

Fee

Based

Commission

Based

Fee

Based

Commission

Based

$1,000-

10,000 1.46% 1.50% 1.36% 0.91% 0.99% 0.33% 1.60% 1.77%

$10,000-

25,000 1.19% 0.68% 1.22% 0.48% 0.98% 0.23% 1.49% 0.88%

$25,000-

50,000 1.11% 0.57% 1.16% 0.36% 0.88% 0.17% 1.47% 0.73%

$50,000-

100,000 1.13% 0.53% 1.20% 0.27% 0.92% 0.12% 1.48% 0.69%

$100,000-

250,000 1.19% 0.51% 1.25% 0.24% 0.96% 0.08% 1.49% 0.70%

$250,000-

1,000,000 1.07% 0.50% 1.09% 0.22% 0.83% 0.07% 1.43% 0.65%

>$1,000,000 0.92% 0.32% 0.99% 0.12% 0.68% 0.03% 1.18% 0.36%

b) Means and quartiles for quarterly returns, by account type:

Quarterly Returns

Date Range

Mean Median 25th Percentile 75th Percentile

Fee

Based

Commission

Based

Fee

Based

Commission

Based

Fee

Based

Commission

Based

Fee

Based

Commission

Based

Jun-12-Sep-12 4.48% 4.04% 4.36% 4.51% 3.16% 2.58% 5.45% 5.76%

Sep-12-Dec-12 0.17% 0.15% 0.99% 0.36% -1.16% -0.93% 1.79% 1.58%

Dec-12-Mar-13 5.75% 6.69% 4.95% 6.91% 3.27% 3.44% 7.81% 9.71%

Mar-13-Jun-13 -0.56% 0.85% -0.49% 0.41% -1.76% -0.90% 0.95% 2.27%

Jun-13-Sep-13 4.91% 4.25% 4.87% 4.25% 3.29% 1.45% 6.44% 6.41%

Sep-13-Dec-13 5.38% 5.34% 5.35% 5.43% 3.81% 2.51% 7.14% 8.24%

Dec-13-Mar-14 1.25% 1.65% 0.99% 1.43% 0.41% 0.26% 1.77% 2.55%

Mar-14-Jun-14 3.53% 3.42% 3.30% 3.48% 2.58% 2.01% 4.17% 4.66%

Jun-14-Sep-14 -1.73% -0.78% -1.66% -0.62% -2.52% -1.85% -0.80% 0.18%

Sep-14-Dec-14 1.27% 1.35% 1.29% 1.25% 0.19% -0.11% 2.54% 3.17%

Dec-14-Mar-15 1.71% 1.37% 1.69% 1.36% 0.74% 0.00% 2.53% 2.69%
September 21, 2015

4

c) A distribution of IRAs in our sample by account balance for each account type:

5) To the extent available, please provide the characteristics of the owners of the IRA 

accounts, including age, education, and other socio-economic characteristics, by fee 

structure (fee-based v. commission-based accounts).

We can provide a distribution of accounts by age range of account holders, as of 2015, for 

fee-based and commission-based accounts. We do not have data on education or other 

socio-economic characteristics.
September 21, 2015

5

6) The report compares fees in fee-based and commission-based accounts. If possible, 

provide data on fees omitted from the comparison, such as asset-based fees in fee-based 

accounts, and, in commission-based accounts, "revenue that the firm may receive 

indirectly from the account holder, such as mark-up/mark-down revenue or 12b-1 fees." 

Please provide data on the distribution of fees around the reported medians.

Our dataset does not contain information relating to “revenue that the firm may receive 

indirectly from the account holder, such as mark-up/mark-down revenue or 12b-1 fees.” 

While we would anticipate this may be an area for future analysis, our paper provides a 

comparison of returns—net of all fees—for fee-based versus commission-based

accounts. If different commission based models differentially harmed investors overall,

one might expect the impact to be apparent in returns. In contrast, our results suggest that 

the two types of accounts do not perform differently, which gives insight into the lack of 

impact of different commission models on performance. Our approach is consistent 

with some of the academic literature. For example, Christoffersen, et al., one of the 

main papers used in the DOL analysis, relies on fund level net returns and fees but does

not include any data on possible account-level fees or expenses.

7) The report compares returns in fee-based and commission-based accounts (Table 4), and 

states that the difference between them is not statistically significant. Please explain what 

difference was tested for statistical significance. Was it the average of the reported 

difference in medians across quarters (sample size of 11 quarters)? Did NERA study the 

difference between fee- and commission-based returns at the account level (sample size 

of 63,000 accounts), and did such study control for relevant factors, such as risk?

We tested the difference between the averages and medians across quarters (with a 

sample size of 11 quarters). Specifically, for each quarter, we calculated the average (or 

median) return for fee-based and commission-based IRA accounts. Then, we calculated 

the difference in the averages (medians) between the account types, and tested to see 

whether this difference was statistically significantly different from zero using a t-test. 

We did not study the difference between fee- and commission-based returns at the 

account level.

8) Table 4 characterizes the statistics presented as "quarterly," implying that the returns 

have not been annualized. Therefore the average, if expressed in annualized form, would 

be approximately -1.1 percent. Is that correct?

Yes, annualizing quarterly returns of -0.28% yields approximately -1.1%. However, 

annualizing returns has no impact on statistical significance.